• Bursa posted another supernormal quarter, with 1Q21 net profit at RM121.4m (+87.5% yoy; +15.8% qoq). Results were in line with our expectations but above the consensus estimate. We expect earnings in the coming quarters to taper off on the back of more normalized trading behaviour
• The securities market continued to stay robust, with 1Q21 ADV rising to a high of RM5.17bn (+100.8% yoy) vs. RM2.58bn in 1Q20 and RM4.98bn in 4Q20
• Maintain BUY with our 12-month PT unchanged at RM12.15, based on a P/E multiple of 26x (at -1SD) on 2021E EPS

Another robust 1Q21, underpinned by the equity market retail participation

Bursa continued to see a robust 87.5% yoy growth in 1Q21 net profit, underpinned by 76.4% yoy growth in the securities market revenue (accounting for 86% of the total), while the derivatives market revenue declined 11.8% yoy (11% of total revenue). 1Q21 equities ADV rose to a high of RM5.17bn (+100.8% yoy) vs. RM2.58bn in 1Q20 and RM4.98bn in 4Q20. The effective securities clearing fee rose to 2.69bps from 2.54bps in 1Q20, largely due to greater retail participation. Meanwhile, the 1Q21 derivatives ADC of 80.3k was down 6.1% yoy, but up 13.2% qoq. The yoy decline was due to a contraction in both FCPO (-7.4% yoy) and FKLI (-19.4% yoy) trades.

Surge in 1Q21 retail participation may taper off, as trading behavior normalizes

Retail participation averaged 40% in 1Q21 as compared to 27% in 1Q20 while local institutional participation decreased to circa 60% in 1Q21 vs. prior-year trends of >70% (before 2020). As disclosed by Bursa, the retail ADV grew by a 4-year CAGR of 40% to as high as RM2bn while retail investors continued to be net buyers in 1Q21 (driven by the ‘COVID-19’ recovery trade), at RM5.4bn vs. a total of RM14.3bn in 2020. Nonetheless, in our view, Bursa’s robust ADV trend in 1Q21 (at RM5.17bn) may taper off as trading behaviour normalizes in the coming quarters.

Catalysts for Bursa Malaysia – Economic Recovery, Prolonged Low Rates

Positive re-rating catalysts for Bursa include more certainty in an economic recovery (with GDP projected at between 6-7.5% by BNM), a prolonged low interest rate environment, ample liquidity and return of corporate profits (from the worst year in 2020).

Maintain BUY, With Price Target of RM12.15 Unchanged

We maintain our 2021E/22E/23E earnings based on these assumptions: i) equity market ADV of RM4.3bn/RM4.1bn/RM4.0bn; and ii) derivative market ADC of 83.5k for 2021E with ~68k for 2022-23E. Reiterate BUY on Bursa, based on our 12-month Target Price of RM12.15 (at 26x P/E target on 2021E EPS). Downside risks: negative market news/political developments.

Source: Affin Hwang Research - 28 Apr 2021